Homeritz’s 4QFY21 net profit fell to RM0.3m, as furniture production were halted during the quarter due to the Movement Control Order (MCO) 3.0 related restrictions. After stripping out forex gain, Homeritz’s 4QFY21 slipped into a core net loss of RM0.1m. Full-year FY21 core net profit of RM20.1m were below ours but in line with consensus estimates, accounting for 87% and 95% of our full-year forecasts respectively. Nevertheless, we are keeping our forecast as we are expecting a recovery in FY22, supported by its strong order book and additional capacity which should further improve Homeritz’s operational efficiency. Our Outperform call and TP of RM0.82 based on a 12x CY22F EPS is maintained. On a side note, Homeritz proposed a final single-tier dividend of 0.6sen, bringing the total dividend proposed to 1.6sen, translating to a dividend yield of 2.8%.

• 4Q FY21 results review. Revenue declined by 86.4% YoY to RM6.3m, as the group’s manufacturing activities was disrupted by the MCO 3.0 restrictions that started from 1st June 2021. Revenue generated was merely from sales of finished goods as shipments for the purpose of imports and exports were still allowed during the MCO. After adjusting for forex gains, the group recorded a core net loss of RM0.1m as operations were suspended temporarily.

• YTD. Although manufacturing activities were halted in 4QFY21, Homeritz’s FY21 revenue increased by 6.1% YoY to RM164.9m. We attribute its sales growth to the increase in exports, especially from the American region. However, the group’s core net profit decreased by 9.8% YoY to RM20.1m, mainly dragged by higher raw material costs and disruption in production activities due to Covid-19 related restrictions.

• Outlook. We are anticipating a strong recovery in earnings for Homeritz in FY22F following the resumption in its production activities. As Homeritz’s workforce is fully vaccinated, we believe that it would likely reduce the risk of an outbreak among its workers. We gather that furniture demand is still strong, underpinned by the robust demand especially from the US region given the increase in home furnishing spending as people are spending more time at home. Homeritz’s order book remains sturdy, with a production lead time of 180 days. In addition, we believe that growth will also be supported from its new factory which has commenced operations in 2Q21 albeit not at full capacity due to labour constraint. Note that at full capacity, the new plant is expected to increase Homeritz’s capacity by 20% to 300 containers a month.

Source: PublicInvest Research - 29 Oct 2021